Zeder has declared an ad-hoc gross special dividend of 10 cents per share (R154 million) in its interim results. This is the second special dividend to shareholders; earlier this year the company announced a special dividend of 5 cents per share (R77 million) which was paid out in August.
Exemplar REITail is proposing an equity raise by issuing up to 99,687,204 shares for cash in a private placing via a bookbuild process. The raise is intended to create the headroom for debt-funded growth.
Shareholders of Prosus N shares are to receive a capital repayment of €0.07 (R1.41) per share. Those shareholders not wishing to receive a capital repayment can instead elect to receive a dividend.
Several listed companies reported repurchasing shares this week. They were:
Gemfields has repurchased an additional 40,062,001 ordinary shares for a total consideration of R126,19 million. The repurchased shares will be held as treasury shares.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 9 – 13 October 2023, a further 3,525,732 Prosus shares were repurchased for an aggregate €99,47 million and a further 337,605 Naspers shares for a total consideration of R1,05 billion.
Glencore intends to complete its programme to repurchase the company’s ordinary shares on the open market for an aggregate value of $1,2 billion by February 2024. This week the company repurchased a further 9,65,000 shares for a total consideration of £44,53 million.
South32 continued with its programme of repurchasing shares in the open market. This week a further 2,019,525 shares were acquired at an aggregate cost of A$7,04 million.
Primary Health Properties plc is to take a secondary inward listing on the Health Care REIT sector of the JSE. The UK-based company, an investor in modern primary healthcare premises across the UK and Ireland, has a primary listing on the LSE and is included on the FTSE 250 Index. The REIT will commence trading on the main board of the JSE on 24 October 2023.
With effect from 26 October 2023, Vodacom’s shares will trade on A2X. The company will retain its primary listing on the JSE and its issued share capital will be unaffected by the additional listing.
The JSE has warned shareholders of aReit Prop, AH-Vest and Sasfin that the companies may face suspension and possible removal of their listings from the bourse if the companies fail to release financial statements before 31 October 2023.
One company issued a profit warning this week: Pick n Pay (update).
Three companies issued or withdrew a cautionary notice: Ellies, enX and Afristrat Investment.
Afreximbank’s impact investment subsidiary, The Fund for Export Development in Africa (FEDA) has invested in the Cabinda Oil Refinery in Angola. Financial terms were not disclosed. The 60,000 barrel per day refinery is an integrated modular oil refining platform being developed by joint venture partners Gemcorp and Sonangol.
Verod Capital and AfricInvest have acquired a majority stake in ICT solutions provider, iSON Xperiences. The companies did not disclose the value or size of the stake, but this is a follow-on investment for AfricInvest who first invested back in 2018. iSON operates in 19 countries, 16 of which are in Africa and serves more than 500 million end-users across multiple sectors.
Oasis Capital Ghana has announced its first complete exit from the Oasis Africa Fund 1, through the successful exit of its holdings in Legacy Girls College in Ghana.
Orosur Mining, a minerals explorer and developer operating in Columbia, Argentina and Brazil, has expanded into Africa with the announcement of a joint venture with Nigeria’s Jurassic Mines. The 70%:30% joint venture partners have agreed to explore a number of exploration licences across Nigeria, considered to be highly prospective for lithium mineralisation. The 70% stake is structured as a two-phase earn-in of US$3 million expenditure for a 51% stake and $2 million for the remaining 19%.
Shell and Saudi Aramco have partnered up to join the bidding for Wataniya Petroleum, a subsidiary of the Egyptian military-owned, National Service Products Organization. Other contenders include ADNOC, North Petroleum International Company, Emirates National Oil Company and TAQA Arabia.
Crafty Workshop, an Egyptian edtech founded in 2019, has raised US$400,00 in seed funding from EdVentures. This is a follow-on investment for the edtech investor who first invested in 2019. The e-learning platform specialises in the creative industries and also serves as a vocational training provider.
Nigerian insurtech startup Haba has announced a US$75,000 pre-seed funding raise from undisclosed investors. The funding will be used to enhance the company’s service capabilities, strengthen its technical team and increase its marketing reach to grow its individual customer base.
Access Afya, a Kenyan healthcare operating system, has raised a significant investment from the Philips Foundation and the UBS Optimus Foundation. The exact size of the funding was not disclosed.
Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:
Accelerate sells off two difficult office buildings (JSE: APF)
The purchasers no doubt have interesting plans for these buildings
Accelerate Property Fund needs to reduce debt and doesn’t have the time to focus on particularly difficult buildings. Two such buildings are the Pri-movie Park office and warehouse and the 1 Charles Crescent office building, both in Eastgate. The fund has sold both buildings at a combined price of R117 million.
The vacancy levels are gigantic. The purchaser (a consortium of four family trusts including a couple of guys I knew at university) must have something different planned for the properties, as a condition to the deal is that Accelerate must sign the required resolutions for the re-zoning of the properties.
BHP disposes of two coal assets in Australia (JSE: BHG)
Two mines in the BHP Mitsubishi Alliance are being sold to WhitehavenCoal
The Blackwater and Daunia mines are being sold for a combined cash consideration of up to $4.1 billion. BHP holds 50% in these assets through the BHP Mitsubishi Alliance metallurgical coal joint venture in Australia.
$2.1 billion in cash is payable on completion, with $1.1 billion payable in cash over three years. The remaining $0.9 billion is structured as an earn-out over 3 years. It’s interesting to note that $100 million is payable as a deposit, which would act as a break fee in certain circumstances i.e. the sellers will retain this amount if the buyers walk away.
The net proceeds of the deal will be used to reduce debt.
In a separate announcement dealing with an operational review for the quarter ended September, BHP noted that it is on track to achieve full-year production and unit cost guidance at all its assets. The highlight in this quarter was an 11% increase in copper production year-on-year.
Of course, meeting guidance doesn’t mean that all production has moved higher. It just means that performance is in line with expectations. For example, iron ore and metallurgical coal are both down year-on-year, as is nickel. When looking at quarterly numbers, the timing of maintenance programmes at individual assets can have a big impact.
The bigger concern is that average realised prices have fallen in this quarter vs. the second half of 2023 for literally every single commodity in the group.
EOH’s operating profit is 35% higher, but is that enough? (JSE: EOH)
Even after the rights issue, there’s a lot of debt here
EOH’s revenue from continuing operations could only increase by 3.3% for the year ended July. That’s pedestrian at best, although the good news is that operating profit from continuing operations increased by 35%. A very important number is adjusted EBITDA from continuing operations, as this is a proxy for cash profits. It decreased by 11.5% to R322 million.
The adjusted EBITDA margin for the continuing operations is only 5.2%, which really isn’t anything to get excited about. This remains a low margin, unexciting business. It just happens to have a rollercoaster of a corporate history.
There is still a headline loss per share from continuing operations, but that’s because of the level of debt in this financial year. R678 million was repaid during the year, the bulk of which came from the R555 million equity raise. The problem is that the balance at the end of July 2023 is R683 million just in interest-bearing bank loans, so that’s still a whole lotta debt in this environment. If you include bank overdrafts and the ring-fenced project finance loan from the IDC, it’s up to R833 million.
Stephen van Coller as extended his contract as CEO by six months until March 2024. He did his job in terms of saving the existence of EOH and helping it achieve a stable balance sheet. There’s also a change to the CFO role, with Marialet Greeff an an internal appointment to replace Megan Pydigadu.
It may be steady, but is it now a good investment? With such a modest EBITDA margin and this much debt still on the balance sheet, I’m not excited by this story. Neither are the outgoing execs, it seems.
Pick n Pay laid bare just how bad it is (JSE: PIK)
If you had been paying attention to the stores around you, this wasn’t a surprise
You know those green scooters that you keep seeing literally everywhere? The ones with the Checkers Sixty60 branding? That also counts as stock research. Common sense would’ve gotten you a long way this year with avoiding being on the wrong side of this chart:
The 12.5% drop on Wednesday after the release of results could’ve been avoided just by reading the trading statement, which made it clear that Pick n Pay is now loss-making even before considering diesel costs.
The reason for this starts very high up the income statement, with turnover up by just 5.4% and gross profit margin dropping from 19.4% to 18.5%. Trading expenses jumped by 13.7%. That’s a disaster, driving a decrease in trading profit of 97.5%.
The group made just R31.8 million in trading profit in the 26 weeks to 27 August, with a loss before tax of R837.2 million because of a huge increase in net finance charges. Unsurprisingly, the interim dividend is a thing of the past.
Of course, the announcement raises the R396 million spent on load shedding and blames this for Pick n Pay’s inability to respond to a more promotional environment. What it doesn’t say is that Shoprite (and others) are operating in exactly the same conditions, so it’s all relative. The reality for Pick n Pay is that years of strategic misstep chickens have now come home to roost.
If we are going to scratch around like chickens for the positives, then Boxer grew 16.1% and Pick n Pay Clothing (in my opinion the best business in the group) grew 13.8%. Online sales growth was 76.3%, although one would expect to see a big number there. Value-added services income grew by 13.5%.
Sean Summers has one hell of a task on his hands.
Quilter achieved a mixed result in the third quarter (JSE: QLT)
Net inflows in the core business are only slightly positive
When measuring the performance of an asset or wealth management business, assets under management and administration (AuMA) is a metric that only tells part of the story. These companies cannot control the movements in global asset values, with this factor having the biggest impact on AuMA. To really measure the performance of the company, you need to look at net flows and whether the manager is attracting new clients or not.
At Quilter, Old Mutual’s old wealth management business in the UK, some parts of the business are showing decent growth. This includes the Quilter distribution channel, with net inflows year-to-date of 16% of opening AuMA in the High Net Worth segment and 11% in the Affluent segment. In contrast, the independent financial advisor (IFA) channel on the Quilter platform experienced a net outflow. Another useful metric to consider is sales per Quilter advisor as a measure of productivity, up 23% year-on-year.
The non-core business experienced outflows consistent with the run-rate in the first half, after adjusting for once-off fund closures.
With all said and done, AuMA of £101.4 billion as at the end of September was very similar to the £101.7 billion level reported at the end of June.
Little Bites:
Director dealings:
Des de Beer has bought another R1.7 million worth of shares in Lighthouse Properties (JSE: LTE). That’s not all folks, because he’s also bought R2.67 million worth of shares in Resilient REIT (JSE: RES).
If you are a shareholder in Caxton and CTP Publishers and Printers (JSE: CAT), look out for an investor presentation that should become available on the website on Monday 23 October.
Impala Platinum (JSE: IMP) released an announcement clarifying the broader scope of the financial assistance resolution put forward in the AGM notice. The reason for the increased scope vs. previous years is because of the need to implement a B-BBEE transaction as part of the acquisition of Royal Bafokeng Platinum.
Following his investment in Apex Group, Mcebisi Jonas has resigned as a non-executive director of Sygnia (JSE: SYG) as this is a competing business interest.
Transcend Residential Property Fund (JSE: TPF) announced that the offer by Emira Property Fund (JSE: EMI) has become unconditional. A further announcement will be made about the clean-out dividend and the finalisation information.
Languishing at below R5 per share, Transaction Capital (JSE: TCP) announced that Coronation is at least buying the dip of all dips, increasing its stake in the company from 19.85% to 20.15%.
In 2022, Sasol (JSE: SOL) announced the appointment of Andreas Schierenbeck as a non-executive director, with much hype around the contribution he would make to decarbonisation efforts. He didn’t stick around for long, now resigning from the board based on increasing demands on his time away from Sasol and the risk of conflict of interests based on energy sector opportunities being pursued by the group.
Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:
Exemplar REITail wants to raise capital via a bookbuild (JSE: EXP)
A capital raise has become a rare sight on the JSE
Exemplar REITail wants to reduce its loan-to-value ratio and try to improve the spread of institutional holders. The problem is that the net asset value (NAV) per share was R14.10 at the end of February 2023 and the share price is R10.10, so any share issuance would be at a discount to NAV.
In this case, the company doesn’t seem too bothered by this. Minority shareholders won’t be thrilled, as the planned capital raise is a bookbuild process rather than a rights issue, so not every shareholder would be able to participate. I think it’s even worse when the raise is simply to reduce debt, especially when the current loan-to-value ratio of 36.3% isn’t even very high!
It’s not a small raise either, with a plan to issue up to 99,687,204 shares – a very precise indication indeed, especially since the circular doesn’t give an intended rand value! The issue price for the bookbuild is a discount of up to 10% to the 30-day VWAP calculated at a future point in time. If we just use the current price for simplicity, this is a raise of roughly R900 million by a company with a market cap of R3.4 billion. Shareholders who don’t get to participate in the bookbuild likely aren’t going to be happy about this.
The loan-to-value will be under 25% after this deal. The company doesn’t plan to stay there, as the headroom on the balance sheet would be used for further acquisitions.
In other words, instead of raising equity capital for a specific purpose, the management team wants to issue shares at a discount and effectively be given a blank cheque for further acquisitions. I’m quite happy to not be invested here.
Hyprop is acquiring Table Bay Mall (JSE: HYP)
This mall perfectly captures the semigration trend
Table Bay Mall is in Sunningdale, which is in the part of Cape Town that is growing really quickly and attracting many families from Gauteng. I have shopped there multiple times and I can tell you with confidence that this is a good asset.
I was less pleased to read in the Hyprop acquisition announcement that there are 5,000 to 7,500 residential units in the pipeline for the area over the next 5 – 10 years. The traffic simply isn’t going to cope.
Practical worries aside, Hyprop is investing in the right area and relatively early in the life cycle of this particular property. The deal is worth R1.625 billion and it will be settled in cash. Hyprop will use existing undrawn borrowing facilities and might use some of the proceeds from the pending dividend reinvestment programme.
After this deal, Hyprop’s loan-to-value ratio is expected to be around 40.3%.
Interestingly, the solar installation has been noted separately in the transaction, with a value of R23.3 million.
By now, you must be itching to know what the acquisition yield was. The net property income for the mall was R108.6 million for the year ended February 2023 and the projection for the next 12 months (i.e. 1 November 2023 to 31 October 2024) is R125.7 million. This puts it on a forward yield of 7.7%, so this was anything but a cheap transaction.
The price may seem high, but I do like the strategic nature of this property.
Separately, Hyprop announced that GCR Ratings has upgraded the credit rating on the Domestic Medium-Term Note Programme. The outlook for Hyprop is Stable according to the agency.
Jubilee Metals is awarded a slag project in Zambia (JSE: JBL)
This isa joint venture with Mopani Copper Mines
The large Mufulira Slag Project has been awarded to Jubilee Metals in the form of a joint venture with Mopani Copper Mines. There are 13 million tonnes of historical slag to be processed, estimated to contain 0.7% copper and 0.27% cobalt in addition to slag arisings. The copper grades within the slag are believed to be double those of standard tailings, so Jubilee is rather excited.
This is quite the project, as it requires the development of the processing solution and the raising of capital as well. At this stage, no numbers regarding future potential profits or returns have been provided.
Ninety One’s AUM continues to drop (JSE: N91)
This isn’t encouraging news ahead of the release of interim results
Ninety One has announced its assets under management (AUM) as at 30 September 2023. This has come in at £123.1 billion, below £124.8 billion at the end of June and £129.3 billion at the end of March this year. For a 12-month view, AUM was £132.3 billion as at the end of September 2022.
Results for the six months to September will be released on 15 November.
The JSE is getting a new listing (and this isn’t a typo) (JSE: PHP)
Primary Health Properties joins us from the UK
Brace yourself: there’s a new listing on the JSE. It’s an offshore REIT, which is perhaps predictable given the popularity of REITs on the JSE. Primary Health Properties (or PHP) is a healthcare REIT that derives 89% of its income from government bodies in the UK and Ireland. Unlike in South Africa, it’s likely that the government actually pays the rent in those countries.
Goodness knows that this isn’t the most exciting way to make money, but the dividend has increased for 27 consecutive years. The annual rent roll is £147.4 million off a property portfolio worth £2.783 billion, so that’s a yield of 5.3% before expenses and debt. Net overheads come to around 10.1% of gross rental income.
97% of the company’s debt is fixed or hedged for a weighted average period of just under seven years, so there’s some protection against this high interest rate environment. Still, low yielding European funds haven’t exactly been having fun, as this chart of the share price in London shows:
There is no capital raise as part of this listing, so this is simply the implementation of a secondary listing to try tap into the South African investor market to drive interest in the shares. It will be interesting to see whether local investors put much value on the defensive tenant base and the hard currency earnings, as this interest rate cycle isn’t finished dishing out pain.
Standard Bank keeps waving its flag (JSE: SBK)
The latest quarter is another strong result
Standard Bank releases a quarterly update to the market because the group needs to provide high level numbers to the Industrial and Commercial Bank of China (ICBC) to enable that entity to equity account its investment in Standard Bank.
This is great because we get more regular updates than would otherwise be the case.
For the first nine months of the year, earnings are up by 30% year-on-year. Both income and cost growth was slower in Q3 than the first six months, but the group still achieved positive JAWS (higher operating margin). The credit loss ratio for the nine months remains within the group’s target range of 70 to 100 basis points.
Over the nine months, the Africa regions contributed 44% to group headline earnings.
Chrome numbs the pain at Tharisa (JSE: THA)
The PGM numbers look really tough
For the year ended September 2023, chrome production was essentially flat at Tharisa and 6E PGM production fell sharply by 19.3%. That’s only the first part of the story. The other part, of course, is commodity pricing. Average chrome prices increased by 25.8% and average PGM prices fell 26.2%. The divergence between the commodities couldn’t be more stark.
This divergence has driven a decision to slow down the Karo Platinum Project, with the commissioning date pushed out 12 months to June 2025. The timeline can be accelerated if markets become more favourable for PGMs.
Production guidance for FY24 is for a flat or slightly higher production number for 6E PGMs, with chrome production expected to increase by as much as 14%.
The net cash position has decreased from $141.5 million at the end of June 2023 to $126.6 million.
The share price closed 5% lower after this update.
Zeder releases results and declares another dividend (JSE: ZED)
This dividend is the starter, with the future proceeds from Capespan as the main course
Zeder has been on a classic “value unlock” journey, which means selling off assets and returning cash to shareholders. This works when the share price is trading at a discount to net asset value (NAV) per share. Based on the results for the six months to August, the NAV per share is R2.62 and the share price closed 5.4% higher at R1.72. So, there’s still a gap.
To help close that gap, a special dividend of 10 cents per share has been declared. This is just a teaser for what is to come, as the company is selling Capespan (excluding the Pome Farming Unit) to 3 Sisters. Zeder holds 92.98% in Capespan and will receive R511 million in proceeds. On a market cap of R2.5 billion, that’s a decent chunk of money that has mostly been earmarked for a future distribution to shareholders.
Along with the Pome Farming Unit that is being retained, Zeder will then focus on growing the remaining investee companies. This makes it sound like much of the value unlock strategy has already played out, so it’s by no means a guarantee that the remaining discount to NAV will close.
Little Bites:
Director dealings:
Guess what? Des de Beer has bought R2.7 million worth of shares in Lighthouse Properties (JSE: LTE).
The spouse of the CEO of Calgro M3 (JSE: CGR) has bought shares worth R270k.
To assist with the successful implementation of the deal with the Government Employees Pension Fund, two non-executive directors of Attacq (JSE: ATT) will no longer be retiring this year as was previously communicated.
enX Group (JSE: ENX) has renewed the cautionary announcement related to the possible disposal of the interest in Eqstra Investment Holdings. Negotiations are ongoing.
The yield is tiny, but it’s still worth noting that holders of N shares in Prosus (JSE: PRX) will receive a 7 euro cents distribution in the form of a capital repayment. It is possible to elect to receive a dividend rather than a capital repayment instead, with different tax considerations.
Delta Property Fund (JSE: DLT) is still in a fight for survival. It’s therefore good to see something positive out of the company, with Alex Phakati (who has loads of experience in the property sector) joining the board.
The Ghost Wrap podcast is proudly brought to you by Mazars, a leading international audit, tax and advisory firm with a national footprint within South Africa. Visit the Mazars website for more information.
In this episode of Ghost Wrap, I recapped a week’s worth of news across a variety of sectors:
PSG Financial Services is making a strong case for itself as an attractive option on the local market.
MiX Telematics has attracted an international suitor and the merged entity would be listed on the JSE, so that’s exciting news.
Karooooo will be sticking to its knitting going forward and that’s a good thing.
CMH is on the wrong side of a car market that is finally cracking, with the car hire business doing a lot better than automotive retail.
Sasfin has managed to offload two business units off to African Bank at a juicy price, leading to a major rally in the Sasfin share price.
Cashbuild continues to struggle, with revenue flat year-on-year.
Calgro M3 released solid results that also show the benefit of share buybacks when used properly.
Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:
Adcorp reports a sharp jump in HEPS (JSE: ADR)
Despite a tough period, earnings are up
For the six months ended August, Adcorp expects group HEPS to be between 175% and 195% higher and HEPS from continuing operations to be between 25% and 45% higher. The difference is allaboutXpert Australia, which made large losses in the comparable period and which is now disclosed as a discontinued operation. In other words, the growth of 25% to 45% represents the performance in the rest of the business.
You would never say that earnings were up if you read the announcement, as the narrative is incredibly bearish. The company focuses on how tough things have been in South African in particular, with decelerating growth in Australia as another concern. They talk about “significant pressure on gross margins” in this result, so they clearly did a great job of managing costs.
Detailed results are due on 30 October.
AEEI looks set to delist (JSE: AEE)
I really don’t think anyone will miss it
African Equity Empowerment Investments (AEEI) is a Sekunjalo-linked company that sits neatly in my basket of things I would never invest in. It looks like the company is on its way out anyway, with an offer to all shareholders other than Sekunjalo Investment Holdings to repurchase their shares for R1.15 per share. The share price was trading at 90 cents before this announcement, so that’s a nice profit for any recent shareholders.
The reason for the delisting is that AEEI is far too small to justify being listed, particularly after the unbundling of the stake in AYO Technology Solutions and the proposed sale of the 30% stake in BTSA for R290 million.
Sekunjalo currently holds 70.6% of the shares and isn’t eligible to vote on the deal. Holders of 47.27% of the remaining shares have given irrevocable undertakings to accept the offer. Holders of 75% of the shares not held by Sekunjalo need to approve the deal for it to go through.
AEEI has sufficient cash in its trust account for this offer, which is worth just under R166 million.
The market didn’t like something in the Calgro numbers (JSE: CGR)
And I’m genuinely not sure what it is!
Calgro released results for the six months to August, in which HEPS grew from 57 cents to 78.88 cents per share. Despite this, the share price fell by 7.25% to close at R4.35. If you annualise the interim performance, we are talking about a Price/Earnings multiple below 2.8x!
Aside from revenue growth of 13.5% and a consistent gross margin, a major boost to HEPS was the level of share buybacks in this period, with 22.6 million shares repurchased at an average price of R2.63 per share. In fact, the group is happy to keep debt on its balance sheet and rather use the cash for buybacks, as the share price is so far below the net asset value (NAV) per share of R11.99.
Return on equity simply isn’t high enough, so trading at a discount to NAV is to be expected. But even in that context, the discount looks high.
If you would like to engage directly with the management team, register for the Unlock the Stock event this Thursday at midday. Attendance is free! Get your name on the list here>>>
Cashbuild’s revenue is flat year-on-year (JSE: CSB)
This means that profits in the first quarter probably dropped
For the first quarter of the 2024 financial year, Cashbuild’s revenue was literally flat year-on-year. New stores contributed growth of 2% and the rest of the footprint was down 2%, so net growth was exactly zero. This is despite selling inflation of 4.3% for the period.
If we dig a little deeper, we find Cashbuild South Africa with net growth of 2% and P&L Hardware as the real headache (as usual) with revenue down 9%.
The share price is down around 22.5% this year.
Insimbi’s cash generated from operations has collapsed (JSE: ISB)
Despite this, there’s still a dividend
Insimbi is involved in sourcing, processing, beneficiating and recycling metals. The group has released results for the six months to August and they aren’t going in the right direction, with HEPS down by 6% thanks to revenue being down 4%. The HEPS decrease would’ve been worse, were it not for share buybacks during the period.
The really big move is in cash generated from operations, which fell by a whopping 95%. One of the factors is the ban on exporting recycled metals, forcing the group to supply to South African customers who demand payment terms. The company hasn’t been successful in collecting debtors on time, with R140 million received from debtors in the days after the cut-off of this period. Although the money has now been received, this is a concern for the business overall. To add to the balance sheet jitters, the group has needed to import more material than before, with payments terms that aren’t as favourable as those received from local suppliers.
Perhaps because debtors were collected a few days after the end of this period, the group has declared a dividend of 2.5 cents per share. This is 17% lower year-on-year, so the payout ratio has decreased in line with general economic concerns.
Octodec enters into leases with a related party (JSE: OCT)
The Wapnick family sits on both sides of the deal
Listed property fund Octodec has renewed several leases with City Property Administration, a company of which Jeffrey Wapnick and Sharon Wapnick are directors. The Wapnick family is considered to be a material shareholder of both companies.
Clearly, this is a related party transaction. The monthly rental amount is R943k and an independent expert is required to opine on whether the rental (and the lease in general) looks fair. BDO Corporate Finance has been appointed accordingly.
Raubex gives the market a positive surprise (JSE: RBX)
HEPS growth is strong, despite an expectation of a softer performance this year
When Raubex released results for the year ended February 2023, the company stressed to the market that the performance was attributable to non-repeating benefits like the Beitbridge Border Post Project (which was completed) and a full year contribution from Bauba Resources. There were other elements that weren’t once-off impacts, like the performance in Western Australia.
Despite the worries about whether strong results could continue, the company has grown HEPS by between 15% and 20% for the six months ended August 2023. Full results are due on 13 November.
The share price closed 4.9% higher but remains around 7.6% down for the year, stuck in a range:
Renergen finds some support in the market (JSE: REN)
The share price closed 11.2% higher after the company finally gave a proper response over SENS
At last, Renergen issued a decent response to the extensive criticism on social media. Unlike the previous statement, this one went out over SENS. Also unlike the previous statement, it treated the concerns raised in the market as being worthy of response, particularly those by Albie Cilliers.
I won’t go through all the points here. The response deals with the leaks that have impacted production, the Linde container on site, the current production capacity, the use of paid market research and the comments made by previous owners of the asset about its viability. The announcement also deals with Trillian’s involvement when the special purpose acquisition company was listed as the entity that would eventually become Renergen. There is also commentary on the changes in shareholders of the company and the related reporting obligations.
I suggest that you read the entire thing so that you can make an informed decision about the company. You’ll find it here>>>
Based on the commentary online, the main concern relates to selling of shares by insiders. The other issue relates to the lack of direct public engagement with Albie Cilliers, with many calling for a Twitter Space (probably called an X Space now?) to settle the issues on a public forum with direct Q&A.
Perhaps that will still happen!
Schroder European Real Estate’s valuations are still dropping (JSE: SCD)
Yields continue to put European property valuations under pressure
Schroder European Real Estate has released a quarterly update on the valuation of the property portfolio. In the three months ended September, the entire portfolio moved in the wrong direction – down 1.9% on a like-for-like basis.
The office assets fell 0.9%, with rental growth in Germany providing a glimmer of hope. Industrial assets fell 2.6%, with yields putting valuations under pressure particularly in France. The retail portfolio in Germany fell by 3.6%, once again because of yield pressure.
The loan-to-value ratio has moved from 31% to 33% gross of cash, or from 23% to 24% net of cash.
Little Bites:
Director dealings:
A2 Investment Partners, related to two directors at York Timber (JSE: YRK), bought CFDs in the company with exposure of nearly R92 million.
The CEO of Truworths (JSE: TRU) sold shares worth R28 million to settle the tax and loan repayable by him in relation to a share incentive scheme. I usually exclude these types of sales from director dealings, but I’m including this one due to the quantum and the possibility that you may have heard about a large sale without realising it was related to share awards.
The CEO of Capitec (JSE: CPI) exercised the right to acquire shares worth roughly R11.3 million at the current share price. The shares were acquired on a highly discounted basis, at strike prices ranging from R705.93 to R1,175.01 (vs. the current price of R1,762)
A prescribed officer of Absa (JSE: ABG) has sold shares worth R8.9 million.
A prescribed officer of Standard Bank (JSE: SBK) sold shares worth almost R1.9 million.
Following the release of results, the CEO of Calgro (JSE: CGR) bought shares worth R640k.
Despite CEO Leon Goosen stepping down from Bell Equipment (JSE: BEL) at the end of the year, he’s purchased shares worth nearly R198k.
Hyprop (JSE: HYP) has released the circular related to the scrip dividend alternative, with the company hoping to effectively retail R500 million worth of equity through shareholders electing to receive shares rather than the cash dividend. The price for the reinvestment will only be released on 24 October, so I doubt shareholders will make any decisions before that announcement comes out.
Ellies Holdings (JSE: ELI), now languishing at 6 cents a share, has renewed its cautionary announcement. The market eagerly awaits the distribution of the circular for the Bundu Power acquisition.
Brikor (JSE: BIK) announced a delay to the release of the circular dealing with the offer by Nikkel Trading. An extension has been granted by the JSE until 8 November.
Sasfin (JSE: SFN) and aReit Prop (JSE: APO) are officially both in the naughty corner with the JSE for not releasing results on time.
Structured products can play a foundational role in managing the long-term and short-term risks while still capturing opportunities in the market.
It is widely accepted that a well-diversified portfolio of equities, bonds and other assets is the best way to preserve and grow wealth over the longer term. Over the long term, equities have been proven to be a particularly good way to deliver inflation-beating returns, thanks to their ability to tap into the key growth themes over time.
While this approach generally works well over time, we all know that in the short term, markets can be subject to extreme fluctuations. Buy into the market at the top of the cycle and you risk losing a big portion of your initial capital in the event of a major drawdown. Buy at what you think is the bottom of the market and you sometimes end up waiting a long time for your view to be realised.
These questions are pertinent at the moment. There are exciting longer-term secular trends under way that are likely to define the expected outcome over the next few years. At the same time however, there are many short-term/cyclical dynamics at play that could disrupt this exciting outlook.
How can a financial adviser tap into these longer-term growth themes while at the same time help clients to navigate the potentially severe volatility of markets over the short term? Before answering these questions, let’s summarise the long and shorter-term themes investors are dealing with at the moment.
The longer-term trends include the following:
Artificial intelligence (AI), in particular generative AI and other advances in technology. We have already seen the AI theme supporting the tech sector this year. The latest buzzword is the “Magnificent Seven” (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla), which together have a larger market cap than the stock markets of the UK, Japan, France and China combined.
Demographics and shifts in global wealth. Led by China, India and other Asian economies, many people have been lifted out of poverty in recent decades. While this process will continue in the coming years, it will also be complicated by the phenomenon of ageing and shrinking populations in Europe and the Far East, and China in particular. At the same time, countries in South Asia, the Middle East and Sub-Saharan Africa will continue to grow their populations. These shifts will have a number of implications for growth, investment and innovation in the coming decades.
Climate change, the environment, and the energy transition. Communities around the world will have to deal with the impact of climate change, while also having to make large investments in mitigating against it and moving away from fossil fuels. What will this mean for demand for commodities and new technologies and what will the costs be?
Over the shorter term, we see the following issues in play:
A potential peak in global interest rates, most notably in the US. While the US has guided for a peak in rates later this year, it recently told markets that it expects rates to come down more slowly next year. This has serious implications for bond yields, which in turn has implications for technology shares, which are geared towards changes in bond yields. It also has implications for indebted governments, businesses, and households, all of whom will want some relief from the costs of servicing their debt.
A sluggish recovery in China. The rebound expected after the lifting of Covid-19 restrictions earlier this year has not yet materialised. Business and consumer confidence remains low, while there are concerns about the health of the highly indebted property sector. It remains unclear how much the Chinese government will intervene to support a recovery.
A tighter oil market as a result of major producers Saudi Arabia and Russia committing to reduce production this year. This has seen benchmark oil prices rise by about 30% between mid-June and late September.
Equity investors will continue to try to tap into these key long-term trends to create value for investors. However, as we highlight above, short, and medium-term effects can have a major impact on the value of investments. Market drawdowns can set back your ambitious investment plans and it can take years to recover the value that is lost. For example, it took over 17 years for the Nasdaq to recover to the level it was at before the tech crash of 2000. While a few lucky investors would have been able to call the bottom for the Nasdaq after the crash, many others would have bought at close to the top and seen a significant destruction of their capital.
It’s here where a financial adviser can access some of the investment technology that’s available out there to manage risk and to participate in some of the long-term themes – notably through structured products.
Structured products are typically designed with exactly these requirements in mind. Investors will get exposure to an underlying asset or index, while also enjoying a degree of capital protection over the life of the product.
The upside is often geared – where investors get a multiple of the growth in the index, up to a certain level – while many structured products provide 100% protection of the initial capital.
Each product will have its own features, but, given the broad parameters above, they can be a powerful tool in any financial planning armoury. Whether as means of investing in the market, without having to worry about the minutiae of stock selection, or as a tactical tool to be used as part of a balanced portfolio to mitigate risk, structured products have a key role to play in building a robust portfolio in exciting, but volatile, markets.
An example of a Structured Product offering is Optimal Investment Growth Basket Limited (“Optimal”). Investec Corporate and Institution Banking, a division of Investec Bank Limited is the South African promoter of Optimal. The investment offers 100% capital protection in US dollars (USD) at maturity (subject to credit risk), and it provides 150% geared exposure to world equity markets up to a maximum return of 60% over the term of approximately 5 years (equivalent to a maximum of 9.8% p.a. in USD).
Learn more here or listen to Episode 22 of Ghost Stories in which Japie Lubbe of Investec Structured Products spoke to The Finance Ghost about this opportunity:
Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:
African Bank acquires major businesses from Sasfin (JSE: SFN)
The African Bank story is becoming increasingly interesting– but why are they paying so much?
If you cast your mind back nearly a decade, you’ll remember the failure of African Bank. For the sake of stability in the local financial services ecosystem, the regulator stepped in and so did the other banks. It’s taken a number of years to get to this point, but African Bank is firmly on a growth path and is making acquisitions. Hopefully, we will see it return to the listed market once more!
The acquisition of Grindrod Bank was recently concluded, giving African Bank a presence in the business banking industry. To further that ambition, the company will now acquire the Capital Equipment Finance and Commercial Property Finance businesses from Sasfin. This is a substantial transaction, worth around R3.26 billion.
The employees involved in these businesses will also be transferred, so African Bank is scaling its operations here rather than just buying some loan books.
Considering that Sasfin generates a poor return on equity and trades at a discounted valuation as a result, it’s a good deal for Sasfin shareholders that the price for the books is at a premium to the net asset value. The Capital Equipment Finance book includes goodwill of R100 million in the price. The Commercial Property Finance business includes an “agterskot” related to profits.
And to sweeten the deal even further for Sasfin shareholders, the vast majority of the purchase price is payable immediately.
After this deal, Sasfin will be focused on its Wealth, Rental Finance and Banking business.
I’m not sure what African Bank’s plans are for these businesses, but they will need to achieve far better profitability than Sasfin could manage. In Capital Equipment Finance, the net assets were valued at R2.29 billion at 31 December 2022 and the profits for the six months ended December 2022 were just R35 million. In Commercial Property Finance, despite shares and claims worth R787 million at the end of December 2022, the loss after tax was R1 million.
This is a Category 1 transaction that requires shareholder approval. The 40% leap in the Sasfin share price on Friday tells you what the market thought of this deal, so I’m quite sure it will go through.
As for African Bank, I fear they have overpaid.
As a final comment, Sasfin’s results for the year ended June 2023 have been delayed further, as the audit still hasn’t been concluded. Results are expected by the end of this month. One wonders what the delay has been.
Deneb offloads a couple of properties (JSE: DNB)
The proceeds will be used to reduce debt
Deneb has agreed to sell two properties in KZN for R65 million. Deneb’s market cap is under R1 billion, so that’s a decent unlock of cash. The proceeds will be used to settle debt.
In the last audited financial statements of the company, the properties were valued at R65.6 million. The profit after tax attributable to the properties was R3.7 million. I will never understand why people buy (or hold) properties on a yield this low, but perhaps the buyer has strategic reasons for wanting the properties.
This is a Category 2 deal, so Deneb shareholders won’t be asked for their opinion on it. If they were, I’m quite sure I know what it would be: get these low-yielding assets off of the balance sheet!
Renergen responds to Albie Cilliers – but not over SENS (JSE: REN)
The share price has tanked 47% in the last month
Things seem to be going from bad to worse for Renergen. Albie Cilliers is well known on Twitter for being like a dog with a bone. In this case, Renergen seems to be a particularly delicious bone covered in delicious marinade, with many questions being asked about the company.
In an ill-advised move, Renergen’s initial response was to release an announcement on SENS that tried to play the man rather than the ball. The market didn’t like that. The company finally made a more significant statement responding to some of the concerns that have been raised, yet for some reason it wasn’t released over SENS. Again, this is weird.
At this stage, the statement only deals with comments made around whether Tetra4 (the local subsidiary) has a lawful and valid production right, as well as the links made to state capture by Albie pointing out that Trillian Capital et al were involved in the original listing.
In summary:
Tetra4’s production right is based on the extraction of natural gas, the process of which is impossible without extracting the helium as well. The company believes that this principle has been supported by a South African Supreme Court of Appeal judgement. I must say, it’s not ideal that this sounds like an argument based on a technicality rather than a piece of paper that says expressly says “helium” on it.
The advisors who were subsequently found to be involved in State Capture were only involved in the early stages of the special purpose acquisition company (SPAC) that would later become Renergen as we know it today. Renergen has expressly denied any involvement or link to State Capture. This doesn’t surprise me at all, as I must be honest that the attempt to draw a link here sounded tenuous at best. A dodgy advisor doesn’t only do dodgy work and hindsight is always perfect.
A lot of noise has been created around Renergen and the huge problem for the company is that there is much capital still to be raised, so the share price needs to stay at elevated levels for the strategy to work out as planned.
I think we will still see many arguments flying up and down on this topic.
The full text of the statement can be found at this link.
Little Bites:
Director dealings:
Here’s a very big one: Dr Christo Wiese has sold shares worth R938 million in Shoprite (JSE: SHP)! That’s not a great signal about the valuation. It also raises questions about the plans for that capital.
And another big one: associates of Johan van Zyl have sold shares in Sanlam (JSE: SLM) worth R68.5 million.
Predictably, Des de Beer has bought another R4 million worth of shares in Lighthouse Properties (JSE: LTE)
An associate of the CFO of Mpact (JSE: MPT) sold shares worth R410k and a director of the group’s major operating subsidiary sold shares worth R617k.
A non-executive director of Discovery (JSE: DSY) has sold shares worth R348k.
The company secretary of AfroCentric (JSE: ACT) has disposed of shares worth R32k.
The Foschini Group (JSE: TFG) announced that CFO Bongiwe Ntuli has resigned to pursue other interests. I remain very bearish on this story and the extent of the debt at TFG at this stage in the cycle. On an interim basis, Anthony Thunstrom will be both the CEO and CFO of the company. That’s another red flag – is there nobody in the finance team capable of filling the role on an interim basis? Where is the succession planning?
Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:
The new car market is finally cracking (JSE: CMH)
This had to happen eventually
I’ve been shaking my head a few times in the past couple of years, not least of all at the state of the new car market in South Africa. With runaway inflation and new car prices that will make your eyes bleed while reading them, I couldn’t understand how so many South Africans can afford a new car.
Sooner or later, this little bubble needed to pop. I don’t think it’s popped yet, but signs of stress are there.
In the six months ended August, Combined Motor Holdings (CMH) reported a drop in HEPS of 12.9%. The dividend is 13.1% lower. We need to dig deeper to understand what is going on, but that certainly sets the scene.
Predictably, motor retail is where the real pressure sits. Global manufacturers are suddenly flooded with stock as supply chains played catch-up at the same time that demand fell away. This pressure flows down into the dealer network, with a requirement to push volumes. This can only mean one thing: great deals on new cars, which directly hits margin.
There isn’t exactly much margin to start with. In the comparable period, operating margin was 3.5%. Although revenue is up 7.2%, operating profit is down 25%. This means that operating margin is now just 2.45%. Ouch.
What isn’t helping is a weaker used car market, as well as the impact of lower mileage on service costs. Aside from hybrid working arrangements, a much higher fuel cost also incentivises less driving, with a direct impact on workshop revenue.
As a final point on the motor retail business, this operating profit number is before finance costs. With much higher interest rates, those costs have ballooned from R39.7 million to R72.2 million. Profit before tax has thus more than halved, dropping from R157.8 million to R77 million.
The car hire business has a much better story to tell, with profits up 12%. Revenue increased by 21% though, so you can immediately see that there is margin pressure, not least of all in terms of the cost of holding the cars. Interestingly, car hire is now making much higher profits than motor rental, with profit before tax of R137.3 million in this period.
To show you just how different the margins are, car hire is more profitable than motor retail in absolute terms, despite having revenue of R447 million vs. a whopping R6.1 billion in motor retail!
The financial services segment also helped offset some of the pain, growing profit from R30.5 million to R34 million.
The prospects section of the announcement doesn’t do much to inspire confidence, with no obvious improvements to operating conditions going forward. The company believes that manufacturers will take at least 6 months to balance inventory levels, so the pressure to push volumes isn’t going away.
Severe discounting isn’t good for the rental business either, as retired vehicle values (i.e. when they are sold at the end of their life as rentals) are under pressure. Encouraging signs for the upcoming summer tourist season are useful, but the entire business is clearly facing pressure at this point in the cycle.
Karooooo has remembered what it should be focusing on (JSE: KRO)
And guess what? The core business is doing well!
Karooooo (the owner of Cartrack) has released results for the second quarter. At its core, this business is all about selling subscriptions for fleet management, which means recurring income that should grow by double digits for a long time to come.
But for a while, I was worried that the company had lost its way.
After all, why on earth would you sell the market a growth story about global fleet management and then invest in building a local used car chain called Carzuka? Thankfully, they are taking the bazooka to Carzuka and getting out. It was a silly idea, but I’ll give them credit for giving up before destroying too much value. This is why investing in a founder-led company can be safer than one with professional managers who might be willing to roll the dice with Other People’s Money for far longer.
With Cartrack subscribers up 15% and total revenue up 17% on a constant currency basis (or 21% in ZAR), things are looking up for the business. Importantly, cash generated from operations grew by 26%. Although the revenue is recurring in nature and good for cash flow, the challenge is that the cost of devices fitted to vehicles can be a real drag on cash flow. It’s a bit like cellphone companies, which must buy the handsets up-front and recoup the cost over the period of a contract.
Group earnings per share grew by 14%.
To give some context to the core business vs. the rest, Cartrack reported adjusted EBITDA of R417 million for this quarter and Carzuka lost R12 million. Karooooo Logistics (which includes acquired group Picup) reported adjusted EBITDA of R8.1 million.
If you ever wondered what a range bound share price looks like, wonder no more:
Kore Potash’s quarterly report doesn’t have new news (JSE: KP2)
But if you want to get up to speed on the company, this is the way to do it
Kore Potash has released its quarterly report for the three months ended September. If you know nothing about the company, it’s a really good summary of the key focus areas. If you’ve been following the story, there doesn’t seem to be anything new.
Long story short, the company is fully focused on the Engineering, Procurement and Construction (EPC) contract for the construction of Kola. SEPCO Electric Power Corporation is the counterparty. SEPCO’s parent company, PowerChina, is required to provide typical guarantees for a contract of this nature.
In working towards this, PowerChina has subcontracted five technical groups for additional design and engineering work, as they need to be very sure about what they are committing to. This will cost over $10 million, with Kore Potash’s contribution capped at $5 million. An initial payment of $1 million has been made and the rest is contingent on further fund raises by the company and SEPCO delivering an EPC contract.
Moving on from the operations to the balance sheet, the Summit Consortium signed a memorandum of understanding all the way back in April 2021 to provide a debt and royalty financing proposal to Kore Potash. The commitment remains, with the company expecting to provide a financing proposal for the full construction cost within six weeks of EPC terms being finalised.
To add to all these moving parts, the company seems to enjoy the support of the Minister of Mines in the Republic of Congo – at least for now. That relationship hasn’t always been smooth sailing, so investors are always keeping an eye on this.
The company has $1.1 million in cash as at the end of September, which shows just how important the recent capital raise of $0.8 million was.
Little Bites:
Director dealings:
A director of ADvTECH (JSE: ADH) has sold shares worth R3m.
PSG Financial Services (JSE: KST) has announced the appointment of Edward Gibbens as CEO of PSG Distribution. He has 30 years of experience at Santam and will join from April 2024 to replace out the outgoing CEO of the division who is retiring.
Discovery (JSE: DSY) also has some executive leadership changes to announce, with Dr Ronald Whelan taking over as CEO of Discovery Health (he is the current deputy CEO) and Nonkululeko Pitje appointed as CEO of Discovery Corporate & Employee Benefits, a new business unit that puts group risk, umbrella funds, HealthyCompany and whatever the “Strategic Client Solutions Hub” is into a single unit.
Anglo American (JSE: AGL) has appointed Matt Walker as CEO of the Marketing business, which is the primary interface with industrial customers. He replaces Peter Whitcutt who is stepping down after 33 years of service.
MiX Telematics and US-based Powerfleet have announced their intention to combine their businesses. MiX shareholders will be offered 0.12762 new Powerfleet shares for every 1 MiX share held. Following implementation of the deal, Mix shares will be delisted from the JSE and the MiX American Depository Shares will be delisted from the NYSE. Powerfleet will take a secondary inward listing on the JSE, retaining its primary listing on Nasdaq.
Following the September announcement that Nikkel Trading 392 has made a mandatory offer to Brikor shareholders to acquire their shares at 17 cents per share, the company announced this week that Nikkel had acquired additional shares in Brikor, taking its effective shareholding from 64.11% to 68.01%.
The Competition Tribunal has prohibited Sasol’s proposed sale of its sodium cyanide business to Czech Republic’s Draslovka. The deal was originally announced in July 2021. In November of 2021 the Competition Commission prohibited the merger on grounds that, amongst others, it would likely result in a substantial prevention or lessening of competition due to post-merger price increases which would be detrimental to customers ie gold mining firms. A number of mining firms had been granted leave to participate in the Tribunal proceedings following their applications for intervention.
Futuregrowth Asset Management (Old Mutual) and Galloprovincialis have invested in logistics software platform Tripplo. The US$1,8m equity investment closes out the firm’s seed funding extension round.
Unlisted Companies
Private equity firm Harith General Partners has agreed to acquire a 46% stake in Mergence Investment Managers. Shandura, a wholly-women owned firm, will also acquire a 5% stake as part of the deal. Financial terms were not disclosed.
Adenia Partners has completed a majority investment in Enfin Energy Finance, a rooftop solar financing company for commercial and industrial clients. This is its first investment from the Adenia V fund. Financial terms of the investment were not disclosed.
Textile manufacturing group Ivili Group has secured a US$5m investment from gender focused investment fund Alitheia IDF. The Ivili Group is comprised of Ivili Loboya, a wool and cashmere processing facility in Butterworth in the Eastern Cape and Ivilitex, a garment manufacturing factory in Cape Town.
AI-driven customer service solutions startup, Cue, has raised US$500,000. The company did not disclose who the investors were but stated that the funding will be used to accelerate their product offering following rapid growth in the UK over the last year.
Ecentric Payments Solutions has acquired fellow fintech operator, Thumbzup. Financial terms were not disclosed. The Thumbzup IP, devices and technology will be fully integrated into Ecentric operations.
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